Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

There are two parties in any lease contract-the lessee and the lessor. To a lessor, a lease analysis involves a capital budgeting analysis of the

image text in transcribed
image text in transcribed
There are two parties in any lease contract-the lessee and the lessor. To a lessor, a lease analysis involves a capital budgeting analysis of the property or equipment to be leased. The lessor's decision is elther to purchase and lease-out the asset, or not make the investment at ail. Like any capital budgeting decision, the lessor needs to evaluate the rate of return expected to be earned from making the lease. Further, since the cost and other terms of leases involving high-cost items are negotiated, this rate of return information is also important information for a prospective lessee. From the following statements, identify the steps involved in lease analysis from a lessor's perspective. Check all that apply. Check and ensure that the NPV of the lease remains negative. Determine the lease payments minus income taxes and any maintenance expenses that the lessor must incur as per the lease agreement. Determine the invoice price of the leased equipment plus any lease payments made in advance. Determine the net cash outlay of the lease agreement. Pele Corp. is a professional leasing company. The leasing manager has to evaluate some lease agreements under the following conditions: - The company's marginal federal-plus-state income tax rate is 35%. - The company has alternative investment options of similar risk that yield 6.00%. Assuming all other factors and values are constant among these leases, from the lessor's perspective, which of the following is the best lease? A lease that has an MIRR of 3.10%. A lease that has an NPV of $81,000. A lease that generates an after-tax rate of return of 3.40%. A lease that has an IRR of 4.70%. Based on your understanding of lease contracts, which type of lease cash flow has the most uncertainty? Tax savings Loan payments Lease payments

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Fundamentals of Futures and Options Markets

Authors: John C. Hull

8th edition

978-1292155036, 1292155035, 132993341, 978-0132993340

More Books

Students also viewed these Finance questions

Question

a. Show an amortization table for the loan.

Answered: 1 week ago